Four Big Reasons You Should Pay Higher Wages

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Raising wages

Four Big Reasons You Should Pay Higher Wages

As the world begins to open back up after the COVID-19 pandemic, a decades-in-the-making reckoning is approaching. Employees have more leverage than they’ve had in a long time, and they’re demanding higher wages.

It seems to be constantly in the news these days: People are rethinking what it means to be an employee in the post-COVID economy. Because employers are losing their leverage, employees are collectively able to rise to power and make demands that would have been off the table just a few years ago. And one of the loudest of these conversations concerns wages.

If you stick with the simplest breakdown and do a little bit of math, it seems like common sense that paying higher wages will automatically lead to lower profits. That money has to come from somewhere, right? But approaching the problem from this oversimplified perspective actually misses out on the benefits of raising wages – and those benefits are pretty compelling. The folks asking for wage increases might actually be onto something here.

So here are four reasons you should consider paying higher wages.

Higher wages lead to higher productivity and higher employee retention.

The Wall Street Journal recently published an article about how higher wages encourage employees to be more productive and can reduce turnover rates substantially. In fact, these factors oftentimes mean that the money you invest into your employees pays for itself several times over. This concept is referred to by economists as the efficiency-wage theory (as the WSJ article points out).

In 2019, Oxford University’s Saïd Business School found a compelling link between employee happiness and productivity. In fact, they determined that happier workers are, on average, about 13% more productive than unhappy ones. If this surprises you, just think about how much easier it is to perform rote tasks when you’re in a good mood rather than a bad mood. On top of that, unhappy employees who blame their employers for their unhappiness are likely to reduce their effort out of spite.

If a 10% wage increase can lead to a 13% productivity increase, it seems like raising wages is a no-brainer.

On top of that, high turnover rates lead to a lot of extra expenses. Trust us, we’re in the business of hiring. We know how expensive it is to hire and train a new employee instead of just keeping on a fully-trained one. With higher wages, you reduce your turnover rate, thus reducing the expenses of rehiring and retraining. This can save you substantial amounts of money in the long term.

And who doesn’t want to save money?

When it comes to talent, you get what you pay for.

When you purchase a hammer for personal use, it’s probably going to sit in a drawer most of the time and only come out in the occasional scenario in which you need to pound on something. When a carpenter purchases a hammer, however, they’re investing in a critical component of their day-to-day life. In the former example, it makes sense to prioritize cost over quality. In the latter, it makes more sense to prioritize quality over cost.

When you hire an employee, you’re in the latter situation. This is someone who will be working for you for 40 hours a week for the foreseeable future – perhaps for decades. Do you really want to pay for the cheaper option rather than the higher-quality one?

SHRM has a great article that outlines the oftentimes overlooked expenditures of a bad hire. When you’re unwilling to pay competitive wages, you’re increasing your chances of making a bad hire. Do you really want to take that chance when it comes to your business or organization?

You might be losing great talent to your competitors.

It’s impossible to say how many people have decided to not work for your organization because they felt the wages weren’t high enough. It’s also impossible to say how many of those people have talked others out of working for you.

And that means you probably won’t ever know if you lost an employee to a competitor because that person liked their wages better. But you can imagine what that might look like. Perhaps that person was a top-quality hire. Perhaps they were a critical member of a project that made a lot of money or reduced costs. Or maybe they’re just slightly more productive than the person you found instead who was willing to work at the lower rate.

This is a side of the coin that too many hiring managers overlook: The good hires you turn away will probably end up working for your competitors. This means that not only are you losing out on the work they would have done for you, but that work is going to your competitor, who may or may not be actively working against you.

The more control your competitors have of your particular niche, the less of a foothold you have there. You simply can’t afford to let your best hires slip through your fingers and end up working for your competitors. This could eventually run you out of business.

After a world-shaking event, society is redefining the “heroes” and “villains.”

Okay, this point is perhaps a little nebulous, so bear with us for a moment.

Coming out of the COVID pandemic, society is reevaluating its priorities. This is leading everyday people to redefine the concepts of good and bad, and they’re attempting to fit businesses into those new definitions. We don’t know how long these new definitions will stick, but there’s a rising tide of people who think that companies that pay low wages might be the villains of the American story.

And this means many businesses are faced with a reckoning. If you refuse to raise wages in an environment where raising wages is simply seen as “the right thing to do,” you’re stepping into the role of the villain. If your company is branded as a villain, it’s going to be really hard to shake that stigma. Sure, there are plenty of huge corporations that have been successfully navigating these waters for decades, but your small business probably doesn’t have the clout or staying power to pull off something like this.

Being branded as the villain won’t help your organization, especially if you’ve spent years building your brand about being kind to others or taking care of your clients. When raising your wages is seen by society as “the right thing to do,” you can either follow their example or become a villain in the eyes of the community.


Business Insider recently published an article in which they claim that higher wages are the only real solution to the current labor shortage. Throughout the article, they provide some anecdotal evidence, but then they sit down and talk with experts. And those experts seem to agree with the general conclusion of the article.

If you’re struggling to find quality candidates in today’s marketplace, raising wages might be your only option. But you don’t have to see that as a bad thing. Instead, think of it as an opportunity to grow, as an opportunity to redevelop your business model around higher-quality hires at higher wages. Companies that can do this are in for a long and successful future. Those who can’t, well…